More On Legal & Compliancefrom The Advisor's Professional Library
- Suitability and Fiduciary Duty Recommending suitable investments is more than just a regulatory obligation. Many investors bring cases claiming lack of suitability, so RIAs must continuously put the onus on clients to notify the advisor of changes in their financial situation.
- Disaster Recovery Plans and Succession Planning RIAs owe a fiduciary duty to clients to prepare for disasters and other contingencies. If an RIA does not have a disaster recovery plan, clients financial well-being may be jeopardized. RIAs should also engage in succession planning, ensuring a smooth transaction if an owner or principal leaves.
The Securities and Exchange Commission is “very sensitive” to preserving money market funds as it proceeds “to the adopting phase” of a rulemaking, with a “laser” focus on the tax, cost and accounting concerns such a rule could pose, SEC Chairwoman Mary Jo White said at the end of March.
During a luncheon conversation at the U.S. Chamber of Commerce's Eighth Annual Capital Markets Summit, White also said that there was “a crying need” for more resources to help the agency boost its examination of the nation's investment advisors.
The commission is considering two “significant proposals” for additional reform to money market funds that were put out for comment last June: a floating net asset value for prime institutional money market funds—the type of fund that experienced problems during the financial crisis—and a proposal to require money market funds under certain circumstances to impose a liquidity fee and permit the imposition of redemption gates.
The latter is designed to stop a “run.” As White stated previously, these proposals could be adopted alone or together.
The floating NAV, she said, is where “the cost, tax and accounting concerns come in.”
“We are very sensitive to preserving the [money market fund] product as part of this [rulemaking] process,” White said.
David Hirschmann, president and CEO of the Chamber's Center for Capital Markets Competitiveness, said to White that there's a belief that “all mutual funds” pose a “run risk.”
White responded that mutual funds “all have redemption risk; the SEC oversees how redemptions are handled” and ensures they have enhanced liquidity, “but that doesn't translate to me that therefore you should regulate [a mutual fund] like a bank.”
As to advisor exams, White said that while the agency is making more use of its risk-based analytics, “particularly in the exam space,” there's a “crying need” for more resources to help the agency examine advisors.
She did, however, tout the agency's newly developed National Exam Analytics Tool (NEAT), which enables examiners to access and systematically analyze “massive amounts of trading data from firms in a fraction of the time it has taken in years past.”
“In one recent exam, our exam team used NEAT to analyze in 36 hours literally 17 million transactions executed by one investment advisor,” White said in a January speech.
White said in January that in 2014, SEC examiners “will be using the NEAT analytics to identify signs of not only possible insider trading, but also front running, window dressing, improper allocations of investment opportunities and other kinds of misconduct.”
President Barack Obama's 2015 budget proposal would give the SEC a 26% boost from the agency's 2014 enacted level and would allow the agency to add 316 staffers to the agency's Office of Compliance Inspections and Examinations, with 240 of those examiners devoted solely to overseeing advisors.
But planning groups are “working hard” to get a bipartisan user fees bill introduced in the Senate that mirrors H.R. 1627, legislation introduced by Rep. Maxine Waters, D-Calif., that has been languishing in the House, said Neil Simon, chief lobbyist for the Investment Adviser Association, at a recent IAA event. Waters’ Investment Adviser Examination Improvement Act of 2013 would allow the SEC to collect user fees to fund advisor exams, but it has garnered little support among the Republican-controlled House Financial Services Committee.